"Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence." - John Adams
It has long been our position that the difference in growth between the US and Europe has been tied up to the availability of credit. Given the on-going deleveraging for European banks as displayed in our May post - "Too many European banks and why the deleveraging has only just started", the dire employment situation in Europe is a case of broken credit transmission channel to the real economy which has been precipitated by the European Banking Association of imposing European banks to reach a Core Tier 1 capital ratio of 9% by June 2012.
The Chart of the Day comes from Bank of America Merrill Lynch's note from the 11th of July entitled "Buying Humiliation":
"As noted in recent weeks, a bond crash and a China crash have the potential to derail the journey. Less noted but of great impact is the ongoing weakness of bank lending and credit creation. Regulatory activity shows little sign of encouraging banks to increase the supply of credit which, as Chart 4 shows, means the growth in jobs across the G7 is likely to remain weak." - source Bank of America Merrill Lynch
As far as Europe goes, Deflation is the name of the game:
"With deflation, banks’ bad debts increase and are likely to reinforce the banks’ unwillingness to take risks, curtailing provision of credit." - Manmohan S. Kumar
"Beware of little lending. A small leak will sink a great European ship." - Macronomics
Stay tuned!
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